Chesapeake Energy unsecured creditors committee objects to statement

By Sarah Lizee

Olympia, Wash., Oct. 27 – Chesapeake Energy Corp.’s official committee of unsecured creditors objected to the company’s disclosure statement, according to Monday filing in the U.S. Bankruptcy Court for the Southern District of Texas.

“The debtors came to bankruptcy with a particular case theory and strategy. Claims arising under the debtors’ ‘FLLO’ term loan are, say the debtors, the ‘fulcrum’ debt. The second-lien notes and unsecured claims are, in turn, ‘out-of-the-money’,” the committee said in its objection.

“There is, according to the debtors, no reasonable factual or legal basis to challenge the pre-petition capital structure. Thus, the FLLO lenders are due the entirety of the Chapter 11 estates.

“Nevertheless, the plan delivers to the FLLO lenders only the lion’s-share of distributable value; magnanimously, it also delivers 12% equity to each of the second-lien and unsecured creditor classes. But, what is bequeathed is immediately taken away.”

The committee said that, through a separate rights-offering, the FLLO lenders and certain select holders of second-lien notes, redistribute to themselves just about all of the allocation reserved for the other second-lien noteholders and all unsecured creditors.

“And, of course, these parties deliver to themselves (and all directors and officers) full plan releases,” the committee added.

None of this comports with the underlying facts of the case or applicable law, the committee said.

“Of more immediate concern, no reader of the proposed disclosure statement learns any of the pertinent facts lying just below the surface,” the committee said.

“It is time for those underlying facts to become known. And, there is perhaps no better time for the reveal than in connection with a woefully deficient disclosure statement.”

In connection with the objection filing, the committee also filed motions seeking derivative standing to prosecute estate claims and causes of action against various parties, including the FLLO lenders and second-lien noteholders.

“There are very substantial and important issues underlying this case; those issues warrant a fair adjudication, consistent with the Bankruptcy Code and fundamental notions of due process,” the committee said.

“That won’t work for the debtors, FLLO lenders and second-lien noteholders; they like their deal too much.”

Chesapeake is an Oklahoma City-based oil and natural gas company. The company filed bankruptcy on June 28 under Chapter 11 case number 20-33233.

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